The Gulf, Mobile and Ohio
By James H. Lemly

 

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CHAPTER XIII

The Gulf, Mobile and Ohio 1940-44

 

1940

ALL groups connected with both old railroads seemed glad that the struggle toward consolidation was over. In some ways, the actual completion was an anticlimax to everyone except those intimately involved in the last actions preparatory to the final proclamations. Most of the employees had assumed that the merger would take place without further question after approval had been given by the Interstate Commerce Commission. The actual completion, however, was a definite relief to the management. The News of October 15, 1940, carried Mr. Tigrett's statement of appreciation and his hopes for the continued success of the railroad he was to head. No evidence of exultation was shown, but there was a clear expression of his hopes for the future of the new Gulf, Mobile and Ohio.  

 

The statement said:

The merger is completed.  After two and one-half years of tension and effort the consolidation agreements, marking the final steps in the last chapter, were filed with the officials of certain States, and Gulf, Mobile and Ohio was legally authorized as a solvent and independent Railroad.

 

It does not take many words to state this fact.  The job itself, however, represents a vast amount of labor.  There have been successes which Seemed at the time to be conclusive.  There have been failures which appeared to be fatal.  These are now behind us.

There many of us who have given to this undertaking our best endeavors-many of us who have been essential in obtaining a happy ending. Of these there are three who have carried the heaviest part of the load-Executive Vice-President Frank Hicks, Vice-President and General Counsel J. N. Flowers, and our New York Vice-President, Bob Brown, For the cooperative attitude of our employees and for the unanimous support of the people living along the lines of the two Railroads we particularly owe a continuing obligation of useful relationship.

As I have already said, the job of consolidating is ended. The big one just now begins. Our aspirations and hopes were expressed by Bill McGovern, General Chairman of Clerks, Northern and Southern Divisions, whom I met last Saturday night just after I returned from New York - 'We have got to make the Gulf, Mobile and Ohio one of the best Railroads in the United States;'  he said.  If I correctly appraise the ability, character, and determination of the people with whom I am working, that is exactly what we are going to do

Completion of the merger did not make a great difference in the operation of the properties of either road.  After the Commission gave its approval to the merger and after the Gulf, Mobile and Northern bought the Mobile and Ohio mortgage bonds, the receivers followed the suggestions of the top GM&N officials in every case where it was possible.

The two top men in the operating affairs of the M&O had decided to cast their lot with the new Company.  Mr. C. E. Ervin, the receiver, was to become a Vice-President of the GM&O.  Mr. Vester Thompson, the operating manager, was to become Assistant to GM&N’s Glenn Brock.  Thus it was ease to establish most of the GM&N’s wishes and policy on the M&O long before the legal technicalities of merger were completed.

Unfortunately for the new Company, Mr. Ervin passed away not many years after the merger was completed so that his services were never fully utilized in the combined organization.  Mr. Thompson, however, is still very active in the operations of the GM&O.

The biggest, or most obvious, change to take place after the actual merger was the moving of most of the St.  Louis office personnel to Mobile.  The GM&O was able to work out these employee shifts without ever having to go through the formal process of using the Washington Agreement.  Each person affected was advised of the Company’s wishes, and in every case amicable arrangements were made on a direct basis without the need of mediators.  Without doubt, the expanding job markets, as well as the demands of defense forces of the United States, helped solve some of these problems.  It had never been the intention of the management to make any employees suffer personal loss as the result of the merger.  One long-range result of this careful, considerate policy was that there was no employee opposition to the Alton merger some five years later.  Nor was there any effort to deny Vice-President Hick’s strong testimony as to the Company’s policy on the matter of employee transfer.

In October, 1940, the newly equipped trains for the Mobile-to-St.  Louis service went into operation.  Two new Diesel locomotives supplied the power, and the coaches were completely rebuilt units which had been reconditioned in the shops at Jackson, Tennessee.  These trains soon were called the Gulf Coast Rebels although they were not made up of new stainless steel cars, as the original Rebels of the old GM&N had been.  The redesigned units, together with the new Diesel engines, enabled the GM&O to inaugurate much faster schedules than had been in force between Mobile and St.  Louis.  When the schedules of the older Rebels were fitted in with those of the Gulf Coast Rebels, there was a substantial reduction in travel time from New Orleans to St.  Louis.

Another important equipment shift was the delivery in the last months of 1940 of two Diesel switch engines.  Two more were delivered in early 1941.  Use of these units, together with the already established use of the passenger Diesels, led the road to study its power problem very carefully and eventually resulted in a complete shift to Diesel power.  This was not to take place until after the end of World War II, however, even though the Company rapidly expanded its Diesel switching fleet during the war years.

 

1941

The year 1941 was one of co-ordination and growth along the new GM&O The Board of Directors had faith in the road’s future, even if some investors seemed unconvinced.  At its January meeting, the Board authorized the management to buy New Orleans Great Northern bonds which might be offered for sale at not over 75.  Later this order was extended to the GM&N and also to the GM&O bonds at similar prices.  During the year, the Company reduced its outstanding debt by $714,600 through its purchase of these securities.  In addition to these purchases, the Company paid $502,000 on its obligations to the Reconstruction Finance Corporation.

By the time all of the GM&O’s new equipment had been delivered, soon after the merger, the road felt it had sufficient equipment for the years just ahead.  However, the rapid increase of war preparedness freight forced a revision of these estimates.  The Association of American Railroads recommended that the GM&O buy 2,000 new freight cars to handle the expected business.  During June, 1941, the GM&O decided to order 1,000 new cars instead of the 2,000.  Before the war was over, the GM&O wished many tunes that it had crowded its budget enough to buy the additional 1,000 cars and then some.

The new home office building for the road was completed in the fall of 1941.  This $600,000 structure had been erected at an initial outlay of $235,000 by the GM&O.   Other payments would be made in lieu of rent, and eventually the GM&O would have complete title to the property.

During the year, the road bought a small coal mine at Sparta, Illinois, to supply the coal for Company locomotives.

The co-ordination and improvement program of the road was not confined to the rail service of the GM&O Gulf Transport Company also made extensive changes.  Early in the year some of the better busses were equipped with individual seat radio speakers so that the riders could listen while they rode.  Later in the year the company added service between Cairo and East St.  Louis, Illinois.  This was over the route of the St.  Louis, Red Bud and Chester Motor Bus and Service Company, whose franchise had been purchased by one of the four highway subsidiaries which the M&O had owned.  Another change which was planned in bus and truck service was for the Gulf Transport Company to acquire all of the other highway companies owned by the railroad at the earliest convenient date and consolidate those activities as much as possible.

In spite of these problems and changes, the management continued its interest in personnel matters and problems.  Mr. Tigrett had a letter printed in the News which expressed his views on labor organizations in general.  This letter was in reply to one addressed to him by a new employee, but it was printed as an effort to inform new employees of the general Company policy toward its employees and their activities.  His letter is as follows:

An inquiry from an employee has cheered me.  It comes from a young man who works for one of our related companies.  He states in effect that he is being urged by a General Chairman to join a Railroad Union; that he wants to do the helpful thing for all concerned, but that he places s foremost his obligation to those who are responsible for his having a job - and what should he do about it?

My advice to him or to any other employee connected with this Railroad or any subsidiary of the Railroad, is to join without hesitation any organization which he is convinced will help to secure or to insure fair treatment for himself and for others.

It should be deemed an honor to belong to a Labor Union which is used as a means to procure justice for its members and, also, justice for all others concerned.  A dispute has two parties; a settlement is not fair unless it is fair to both sides.

Labor organizations can do much, not only in obtaining benefits for their own membership but also in aiding employers and the public through the just settlement of disputes.

If I should be permitted to voice a suggestion I would implore our employees to take a continuing and an abiding interest in the organization after joining--to the end that fair and able men may be chosen as representatives.  It should be remembered that those who are selected will be regarded as expressing, while they are in office, the sentiment of every single member.

Taken as a whole, I believe that the men and women who work for our Company want to see the employer treated just as fairly as they expect to be treated.  If that is true, they should take a keen part in seeing their leaders represent their viewpoint.

The stockholders who are making it possible for the employees to have jobs are entitled to consideration from the employees.  Those who represent the employees and those who represent the stockholders rarely ever fail to reach an agreement if they attempt to observe the general principle of the Golden Rule.  Fair contractual relations and a generous recognition of our moral obligation to each other make for a happy industrial family.

Again do I express my appreciation for the attitude indicated in the letter which I have received.  What I am saying in reply I am, without apology, making public.  I think the question the young man has asked is a public question.

1942

At the time of the Japanese attack at Pearl Harbor, the GM&O, along with all the other railroads of the country, was deep in wartime transportation.  Our active entry into the conflict almost immediately brought new and greater pressures on the GM&O The German submarine activity in the Gulf of Mexico and nearby waters brought two great shifts in the Company’s freight tonnage.  Because the oil tankers could not get safely from the Louisiana and Texas refineries to our east coast cities, the GM&O began to get numerous movements of maximum length oil trains which traveled from its southern ports to the North and the East.  This movement continued for many months before sea and air patrols restored a semblance of safety to the shipping lanes so that water shipments could begin again.  The gradual decline, and, finally, the complete cessation of the banana movement from Central and South America was also caused by enemy submarine activity and the shortage of shipping.  In July, 1942, the banana movement came to a complete stop and for several reasons never regained its prewar importance until the end of hostilities in 1945.

In spite of these and other operating problems, the GM&O was making progress in its integration of GM&N and M&O personnel.  The August 15, 1942, issue of the News reported that the GM&O stood in second place in its safety campaign group of twenty-six railroads.  This was a substantial improvement over 1941, and it clearly indicated that the GM&O was succeeding in getting co-operation in its operating services.

On July 1, 1942, Gulf Transport Company became the sole highway subsidiary of the GM&O All the other companies had been merged into this unit for operating purposes.  At this tune, Gulf Transport was operating 1,133 bus route miles and 1,734 truck route miles through Missouri, Illinois, Kentucky, Tennessee, Alabama, Mississippi, and Louisiana.

Not content to rest on its reputation as a pioneer in many phases of land transportation service in the past, the GM&O decided that it wanted to try its hand at air transportation service.  On May 1, 1942, the GM&O applied for postwar air rights through its entire territory.   Rebel Air Freight, Incorporated, as the new subsidiary was to be called, proposed to render service primarily from Chicago to the Gulf coast by way of St.  Louis, Memphis, Birmingham, and Montgomery.  In addition to these major cities, the plan proposed to serve most of the smaller cities with air freight and passenger service through feeder routes.  New air routes of this type were not awarded during the war years and before the war was over the GM&O had decided not To press its case to secure these routes.  Finally the GM&O’s request for air rights was withdrawn and the company announced its intention to keep all of its operations on the ground.

Because of limited patronage, the GM&O ceased operating its passenger trains between Union, Mississippi, and Mobile on April 28, 1942.  Additional bus service was provided in lieu of the concelled train schedules.  When the Laurel, Mississippi, Chamber of Commerce complained at the loss of the trains, the road pointed to its need for equipment elsewhere and the fact that the trains were scarcely used.  For example, in March, 1942, the busses of the Gulf Transport Company carried 9,679 passengers between these points, whereas the trains over the same route carried only 1,794 people.  In the light of those facts and the wartime conditions, the complaint was soon dropped.

Another bit of evidence of wartime conditions in 1942 was that Gulf Transport hired its first woman bus driver in November of that year.  Evidently the surplus of labor which the GM&O once had was no longer in evidence!

 

1943

The peak war year as far as the Gulf, Mobile and Ohio was concerned was 1943.  Both its problems and its earnings hit their crest during this year.  The biggest problem was employee turnover.  During the year, the road had an average of 6,600 employees, but a total of 12,000 different names were on the payrolls for the 12-month period.  Many of these were new, “green” employees with no railroad experience.  The road sadly missed the 850 employees who were in the armed services, but somehow it managed to continue relatively safe and prompt operations.

Two of the GM&N—GM&O’s oldest Directors from point of service left the Company in 1943.  Mr. W.H. Coverdale was forced to resign from the Board through an ICC ruling which classed him as director of a “competing” line and, therefore, ineligible for the Board of the GM&O.  This case had been pending ever since the merger in 1940, but because of Mr. Coverdale’s long and valuable service to the road, the GM&O had refused to let him go without a final ICC order to the effect that he could not serve.

It is quite ironic that Mr. Coverdale, who bad done as much as any Director and more than most to build the GM&N into a strong permanent rail line, had to be forced off the Board at the time of the Board’s biggest step in its growth program.

The other Director to leave in 1943 was Mr. R. F. Brown, who had served as New York Vice-President of the Company for many years and who had been connected with the GM&N and the GM&O since the creation of the GM&N in the period 1913-17.  In 1943 Mr. Brown was a partner and longtime employee of Kuhn, Loeb and Company which had acted as bankers for the GM&N-GM&O since the reorganization of the New Orleans, Mobile and Chicago.  He resigned as Vice-President and Director when the road sought competitive bids on certain refinancing proposals during 1943.  

At the time of Mr. Brown’s resignation, the Board passed the following resolution: “Be it resolved by this Board of Directors that it does hereby affirm its full and complete confidence in the management of this Railroad and does hereby commend heartily the management for its action in refinancing the Company’s indebtedness on such a favorable basis to the Company.”

The biggest single event in 1943, as far as the GM&O was concerned, was the refinancing of $18,500,000 of bonds due in 1950.  The Company sold $15,400,000 of collateral trust bonds and used $3,000,000 of treasury cash to retire the older issues of bonds.  The Reconstruction Finance Corporation bought $8,700,000 of collateral trust bonds, due in 1958, with an interest rate of 4 per cent.  This transaction was carried out to replace the GM&O’s note for $8,780,000, due in 1950, which carried 4 per cent interest.  The Company also sold $6,700,000 face amount of collateral trust bonds through Halsey, Stuart and Company at an average interest rate of 3.49 per cent.  The GM&O thus reduced its interest charges by $283,000 per year, and it also exchanged a very large block of its fixed obligations, which had been due in 1950, for securities with longer maturity dates.

The net income of the GM&O and of most other railroads showed a decided upward trend from 1940 through 1943.  In fact, railway net income was so high for most roads that the Interstate Commerce Commission rescinded the temporary increase in rates which had been granted in March, 1942.  Although it disliked losing this revenue, the GM&O realized that the move was logical if the government really intended to hold the line on wages and prices throughout the entire economy.  The general feeling of the Directors of the road was expressed in a story which was carried in the News and is reproduced in Figure 16.

 Vice-President and General Manager Glenn Brock reported to the Board in September, 1943, that the GM&O could save $800,000 to $1,000,000 annually if it changed to Diesel power on the entire road.  The changeover would cost approximately $9,000,000.  The Board approved a plan to secure certain road freight Diesel units for testing purposes in 1944.

Soon after the merger in 1940, the GM&O decided that it was no longer interested in maintaining its dock and pier facilities which had formerly belonged to the M&O.  This property was old and not in good repair, it was located within the main business district of Mobile, and the tax rate was high.  The property was adjacent to the new Alabama State Docks which hoped to expand into part of the area owned by the GM&O.  Negotiations were begun in 1941 to see if the State Docks desired to buy these facilities.  At this time the city of Mobile evidenced an interest in some of this property.  In the spring of 1942, the city proposed that it buy most of these facilities.  The plan was for the city then to sell or lease much of this property to the State Docks.  Negotiations were carried on through 1942 and 1943 until the transaction was finally completed on December 1, 1943.  The GM&O received $350,000 for its share of this property.  As this was some $600,000 less than the depreciated book value of the properties, the GM&O was able to take a tax deduction of this amount on its income tax return for 1943.

Perhaps the most spectacular event in 1943 for the GM&O was the discovery of oil in Wayne County, Mississippi.  The road owned 23,000 acres of land in Wayne County.  Some leasing and drilling was taking place on the GM&O land in this area, but during 1943 no wells were brought in on land belonging to the road.

 

1944

Railway operating revenues for the GM&O in 1944 were almost equal to those of 1943, but the net income was over a million less.  Increased taxes and increased operating costs made the difference.

Wartime movements continued to be heavy, and the operating department in particular was plagued by continuing man power problems.  Perhaps under these circumstances, it was fortunate that the road freight Diesel units which had been promised for the latter part of 1943 were not delivered.  The manufacturers were unable to allot production to civilian use because of unexpectedly heavy military orders.  The Company did receive four more Diesel switchers, however, and was able to buy some all-steel gondola cars in place of 116 box cars, which the War Production Board decided should not be produced at this time.

As in 1943, the big news for 1944 was refinancing of Company securities.  $10,500,000 of 3.75 per cent 25-year Series D bonds were sold at a net interest rate of 3.92 per cent.  Cash from this sale plus $798,000 from treasury funds allowed the Company to retire two groups of securities.  The most important of these were the $8,600,000 of collateral trust bonds sold in 1943 to the Reconstruction Finance Corporation.  Also, the Company retired $2,000,000 of colateral trust bonds from another issue which had been due in 1953.  By means of this sale and the accompanying transactions, the Company was able to restore to its treasury $5,314,000 of its own bonds which had been put up as security for the collateral trust bonds, and it also was able to cancel the $10,500,000 in Series C bonds, which had been issued to protect the RFC loan in 1940.  At a time when new financing was fairly easy, this action freed the GM&O from RFC financial control and generally strengthened its position in the money market.  Ex-banker Tigrett did not want to be caught in an unfavorable position by a changing money market influenced by peacetime conversion problems.

The policy of retirement of obsolete properties continued.  The 12-mile Blocton Branch between Eoline and Blocton, Alabama, was abandoned during the month of July.  In August, the 9-mile Aberdeen Branch in Mississippi was also abandoned.  These were two unprofitable branches on the former M&O properties which apparently held no hope for future profitable use.

In addition to these branches, the road also retired the old M&O Whistler shops near Mobile, and it closed and salvaged the power plant at the Iselin shops of the M&O at Jackson, Tennessee.  A purchase contract was made with the Tennessee Valley Authority to supply power needs at a price below the operating costs of the Iselin plant.  After these and a few other minor actions, the management was able to report that practically all obsolete property had been retired.  The road was trying to remove all property which would not add strength to postwar operations, and it was trying at the same time to reduce its income tax payments as much as possible.

Gulf Transport Company continued its growth during 1944.  In May operations began over the route of the former Butler-Mobile Coach Line which ran from Mobile to York, Alabama.  Also toward the end of the year, Gulf Transport applied to the Mississippi Public Service Commission for permission to serve Jackson, Mississippi, from Newton, Mississippi, primarily.  This was to be a closed door bus service from Newton because Southern Trailways already held the franchise over this route.  The primary purpose of the application was to allow the Gulf Transport to operate its buses along the GM&O lines and, at the same time, to connect these points with Mississippi’s fast-growing capital without the necessity of transferring to buses of other companies.

In addition to giving the territory a more satisfactory service, the move presumably would increase Gulf Transport’s revenues.  By the same token, Southern Trailways stood to lose business and it very naturally opposed Gulf Transport’s requests.  The resulting contest was not one that could be quickly solved, and it was the early part of 1945 before the Commission’s decision, which refused to sanction Gulf Transport’s entry into Jackson, was announced.

During 1944, the GM&O began to study the possibility of meshing with the bankrupt Alton Railroad (Alton).  In 1943, one of the GM&O directors wanted the Company to investigate this situation, but Mr. Tigrett demurred because of the east-west line of the Alton from St. Louis to Kansas City.  Later Mr. Budd of the Chicago, Burlington and Quincy, contacted Mr. Tigrett and suggested that the east-west line might be sold, thus leaving the GM&O with the St. Louis-Chicago main stem.  With this encouragement, the GM&O began looking into the advantages and disadvantages of a possible merger.  For this purpose, Culver White, son of “Dad” White who was the GM&O Treasurer, was retained as a special assistant to President Tigrett.

The oil drilling activity in Southern Mississippi continued, and during 1944 some production resulted on the GM&O noncarrier land which had been part of the federal land grant to the M&O in 1850-60.  To be better able to lease its property, the road organized the Gulf, Mobile and Ohio Land Company and transferred all its noncarrier lands in the exploration area to this company.  This action was necessary because it was difficult to sell or trade oil leases on land covered by rail mortgages.  Under this plan these noncarrier lands were cleared of these liens so that leasing could be expedited.  At the close of 1944, this new subsidiary was receiving royalties at the rate of $1,500 per month.  Active drilling operations were continuing, and prospects were good for further development.


 

POLICY OF THE GM&O CONCERNING WARTIME INFLATION

GM&O News May 15, 1943

 

It was not very long ago—on December, 1941—that railroad employees were granted an increase in wages.  To help offset that increase, the Interstate Commerce Commission allowed the railroads in March 1942, to raise their rates.

Just the other day, the ICC ordered the suspension of the freight rate increase.  This means that the railroads’ revenue has been taken away while the increased wage expense is permitted to stand.  Naturally we dislike being deprived of this revenue.  It would be quite helpful in restoring the greatly diminished equity of our stockholders.

At the same time, if this policy of the ICC is a step toward checking the current inflationary flurry; if it means that our Government will not permit, except in thoroughly warranted instances, further increase in wages and other items which raise the cost of living; if it means that our dollar is going to retain its value; and if it means that the money which all of us are investing in life insurance and war bonds will be preserved after the war

Then the Management of this Railroad raises no objection-.  We are, in fact, glad  to contribute toward a sound program.  of national economy.

We believe also in a low transportation charge for the public.  It stimulates commerce.

But all of us—the employees, the public and management-should be ever mindful of the fact that the cost of a transportation service is generally reflected in the rate.

That is why useless expenses in railroad operations should be eliminated: that is why we should not be forced to pay employees for work which they do not perform; that is why the railroads should be relieved of the unjust, “featherbed” rules with which they have been gradually manacled, mainly through interpretation of the National Railroad Labor Adjustment Board from whose decisions there is no right of appeal.

 

FIGURE 16

 

 

 

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